Refi mortgage market share could plummet to 1990 low, Freddie warns

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The share of origination volume that comes from refinancing keeps coming in higher than expected, but a Freddie Mac forecast suggests it could really run out of steam next year.

The rise in mortgage rates from near-record lows last summer has diminished refi potential to the point where it only represents one-fourth of home loans in 2018, according to Freddie.

But refinancing could yet prove to be more resilient than expected.

Refi potential due to rate increases is supposed to be less than half of what it was a year ago, potentially affecting only $300 billion loans as opposed to $800 billion last year.

But refinances for the first half of 2017 are down only 48% year-to-year. That's because of borrower use of refinancing for other purposes other than rate reduction, such as refinancing in order to shorten the term of a loan or tap home equity.

Home prices have appreciated by 6.3% so far this year, according to Freddie Mac's latest monthly economic report. In the first half of 2017, home mortgage borrowers cashed out $31.2 billion in home equity.

With refinancing expected to dwindle, lenders will look to purchase lending driven primarily by growth in the new-home market for volume, according to Freddie's report.

New- and existing-home sales combined will likely grow about 2% next year and home prices are forecast to increase by 4.9%.

"The economic environment remains favorable for housing and mortgage markets," Sean Becketti, Freddie Mac's chief economist, said in a press release.

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